Shares in IT reseller and consultancy supplier Computacenter (CCC) have slumped more than 17% to £10.42 on what can be generously described as soggy third quarter trading figures.
This is a FTSE 250 company that had a market value of roughly £1.43bn before today, yet investors have slashed nearly £250m off that market cap.
The company says that a revenues decline of 3.4% in the July to September period (to £900m, in reported and constant currency terms) is down to tough comparatives last year. In the same period during 2017 the company posted 20% growth.
PATCHY THIRD QUARTER
The decline came from Technology Sourcing, while Services growth was consistent with prior periods. Geographical trends remain largely unchanged, with growth here and there in Germany and other international markets offset by declines in the UK and France.
What is really worrying investors is that today’s announcement seems to imply a spell of very firm trading is now coming to an end. Computacenter is still optimistic that it will return to overall growth in the final three months this year but admits that this will likely not hit ‘levels seen in the first half of the year.'
The fact that this chimes loud and clearly with very similar comments from IT reseller peer Softcat (SCT) earlier this month has not been lost on investors. Its chief executive Graeme Watt at the time flagged a very strong market for IT reselling business over the last 18 to 24 months, but that the months ahead are lined with ‘uncertainties’.
Softcat shares are also down today, off about 6.5% at 641p.
‘We acknowledge that the un-even segmental results will cause nerves to twitch, as the cautious are frightened off,’ says Stifel’s technology analyst George O’Connor today.
CONTEXT FOR INVESTORS TODAY
Yet two things should not be ignored by investors with an eye on the longer-run. First, that there remains very solid reasons for organisations to increasingly embrace outsourced IT solutions (greater flexibility, lower fixed costs, staying up to date with technology developments).
The management of both Computacenter and Softcat remain very positive about long-term prospects for their respective businesses.
Second, stock prices had been driven to seldom-seen premiums during this spell of very strong trading for both firms. Price to earnings multiples were recently running in the mid-20s to low 30s.
The steepness of share price declines since could be seen as some of the excessive heat radiating out of both company stocks, a point Shares made specifically about Computacenter as recently as August.